Thursday, September 22, 2011
Stock Market Commentary:

Nearly every major capital market (equities, euro, crude oil, gold, copper, etc…etc..) was smacked on Thursday in the wake of the Fed’s meeting. Nearly every day since mid-August, we told you that the major averages were simply rallying (on light volume) towards resistance (50 DMA line) and unless they broke above resistance, the sideways/range bound action would continue. We also discussed the negative divergence we began to see in the middle of September between U.S. equity markets and other capital markets. We find it disconcerting to see that Copper, several European stock markets, and crude oil all fell to fresh 2011 lows as U.S. equity markets were bouncing towards resistance. We would also like to note that since 2008, Copper, crude oil, and several European and Emerging stock markets have moved before U.S. markets. Copper, China, & India’s stock markets all bottomed in Q4 2008 and U.S. markets bottomed in March 2009. These markets also topped in 2011 before the U.S. markets did. Therefore, watching these relationships are important to successfully navigating our markets. At this point, the current rally is under pressure evidenced by several distribution days (heavy volume declines) since the latest FTD. It is important to note that even with the latest FTD, the major averages are still trading below several key technical levels which means this rally may fade if the bears show up and quell the bulls’ efforts.

China’s PMI Falls, Global Economy Slows, U.S. Jobless Claims Edge Higher

On Thursday, China said its factory sector contracted for a third consecutive month in September which bodes poorly for the global economy. HSBC’s China Flash Purchasing Managers’ Index (PMI), slid to 49.4 which was lower than August’s reading of 49.9 and below 50 for the third consecutive month. The report implies that the global economy is slowing down since China’s factories are producing less goods. The global slowdown echoes negative concerns from the U.S. Federal Reserve regarding the healthy of the underlying economy.

Market Outlook- Rally Under Pressure:

The major averages confirmed their latest rally attempt on Tuesday, August 23, 2011 which was the 11th day of their latest rally attempt. It is important to note that all major rallies in history began with a FTD however not every FTD leads to a new rally (i.e. several FTDs fail). In addition, it is important to note that the major averages still are under pressure as they are all trading below their longer and shorter term moving averages (50 and 200 DMA lines) and are all still negative year-to-date. Our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. This rally will fail if/when several distribution days emerge or August’s lows are breached. Until then, the bulls deserve the benefit of the doubt. If you are looking for specific help navigating this market, please contact us for more information.